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eBay Has A Problem: It's About To Lose Its Biggest Business

In results announced today, the company's PayPal unit, which includes Venmo, reported larger revenues than the core auctions business, for the first time in eBay's history.

Posted on April 22, 2015, at 6:19 p.m. ET

Matt Cardy / Getty Images

While eBay managed to beat Wall Street's expectations for the first quarter of this year, its auctions business continued to lose ground to its payments business. And that's a problem for eBay, because the 20-year-old e-commerce pioneer will soon be split in two, with the faster-growing PayPal unit becoming a separate company.

That means eBay's core auctions business will have to stand on its own, even though its revenues shrunk to $2.07 billion during the quarter, down 4% from the same period last year. The payments unit, including PayPal and Venmo, had revenue of $2.11 billion, up 14%. It was the first quarter the payments business pulled in more revenue than the auctions site.

The company said the rising value of the U.S. dollar hammered the total amount of commerce done over its marketplace in dollar terms, saying it declined 2% to $20.2 billion, down 4% overseas and up 2% in the U.S. Stripping out the effects of the stronger dollar, eBay said that the total amount transacted in its marketplace would have gone up 5%. The total volume of payments through PayPal, on the other hand, grew 18% to $61 billion in the first quarter of this year.

Devin Wenig, the head of eBay marketplaces, said on a call with analysts that the division's results were "encouraging" considering the poor year it had in 2014, when it was hammered by a security breach and lower search traffic thanks to a punishment from Google for certain search engine optimization tactics.

"We are certainly not ready to declare a victory over last year's SEO and password reset challenges, but we are making progress. SEO-generated traffic is still impacting growth," Wenig said.

"We had a strong first quarter, with eBay and PayPal off to a good start for the full year," eBay Chief Executive Officer John Donahoe said in a statement. "I feel very good about the performance of our teams."

Donahoe also said that the "smooth separation" of the two would happen in the third quarter of this year. "We are deeply committed to setting up eBay and PayPal to succeed and to deliver sustainable value to our shareholders," he said.

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